Sometimes no bad news is good news. Faced with tepid demand, India Inc had been forced to cut prices to support sales over the past few quarters. But if the near-flat sales growth by 1,500 listed companies in the March quarter over the same period last year is any indication, the worst could well be over.

This is the best performance in the four quarters of 2015-16.

Sales for these companies had dropped between 5 and 7 per cent in the June, September and December quarters, over the respective periods in 2014-15. But overall profit growth fell about 14 per cent, mainly due to the huge impairment charges booked by companies such as Vedanta, Cairn India and Tata Steel, and the drop in profit reported by refineries. Adjusted profits, however, grew 9 per cent in the March quarter, over the same period last year.

Banks and finance companies have been excluded for this analysis. Consolidated numbers have been considered wherever applicable.

Infra, exports benefit The ‘recovery’ in net sales is good news for the economy as it indicates a pick up in demand.

“Either because of low expectations or due to improvement in underlying macros, many corporates reported in-line or better-than-expected numbers,” said Pankaj Sharma, Head of Equities at Equirus Securities.

Even as the fall in commodity prices continued to hurt the topline of companies in the metals, mining, steel and oil and gas space, consumption-related sectors — such as auto and auto ancillaries, entertainment, paints, garments/apparel — did well. The government’s thrust on infrastructure and reforms in the power sector also helped players in roads, infrastructure and power such as IRB Infra and L&T, which clocked good revenue growth.

Thanks to the rupee’s weakness, export-oriented IT and pharma companies stood out with double-digit sales growth over the March 2015 quarter.

Reported profits fell 14 per cent year-on-year. The drag was predominantly due to impairment charges (one-time write-offs) booked by some companies. Vedanta, for instance, wrote off ₹12,304 crore due to impairment of goodwill related to the acquisition of Cairn India; Tata Steel also booked an impairment charge of about ₹1,724 crore.

Lower input costs help The support at the operating level helped bottom-line growth. Operating profits for the companies grew 10.7 per cent in the latest March quarter, over the previous comparable 2015 quarter.

This growth predominantly came from lower input costs. Raw material expenses fell about 5.3 per cent during this period. Besides, raw material costs as a percentage of sales also came down from 54.7 per cent a year ago, to 51.8 per cent now. This led to an expansion in operating margins by 150 basis points to 13.4 per cent.

The benefits of low natural rubber prices, for instance, helped tyre companies such as Apollo, CEAT, JK Tyres and MRF. These companies clocked between 15 and 50 per cent growth in net profit, despite a drop in sales growth, predominantly due to stiff competition from Chinese imports.

Similarly, benign prices of copra and liquid paraffin (a crude oil derivative) saw Marico’s profits zoom 26 per cent, despite a top-line growth of only 6.5 per cent. FMCG companies used the savings in input costs to increase ad spends.

(With inputs from Priya Kansara in Mumbai)

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